The Orange County office market recorded an eighth consecutive quarter of positive absorption in the year’s first three months, indicating a consistent recovery is under way.
Vacancy levels continued to decrease, fueled by improving employment in the first quarter.
Almost 250,000 square feet of positive absorption was recorded in the Orange County office market during the first quarter of 2012.
Net absorption figures are down in comparison to last quarter, but the market is expected to absorb space at a steady pace throughout 2012.
Tenant activity in the first quarter was concentrated in South OC, which generated more than 416,000 square feet of positive net absorption.
The Greater Airport Area recorded about 178,000 square feet of negative net absorption, offsetting gains in South OC.
Increases in the occupancy rate in the first quarter brought the vacancy rate down to 15%―a low not seen since the second quarter of 2008.
Vacancy Declines
The overall vacancy rate in OC has dropped substantially each quarter since it peaked at 18.2% in the first quarter of 2010. South OC marked the greatest vacancy decline in the county.
OC’s average asking lease rate had a minimal 1 cent decrease this quarter to $1.93 full-service gross per square foot. The last two years of positive net absorption have not stopped the decline in lease rates entirely, but it has slowed the velocity of this decline considerably.
Construction of build-to-suit office space is taking place, though there is no new development of speculative office product.
The Irvine Company began construction in Newport Center last quarter on the 380,000-square-foot build-to-suit office tower for investment manager Pacific Investment Manage-ment Co. Completion of this class A high-rise property is slated for completion in late 2013.
Vacancy
The total vacancy rate for OC dropped to 15%, down from 15.2% last quarter. By area, South Orange County had the strongest decline compared to submarkets in the rest of the county, while the Greater Airport Area vacancy rose by 40 basis points. Vacancies in class A properties decreased slightly to 17% while the vacancy level of class B dropped to 13.1%. Class C properties saw an increase in vacancy to stand at 15.2% this quarter. The total availability rate in the Orange County declined 10 basis points to stand at 20.7%. Both West and South recorded decreased availability rates, which now stand at 21.6% and 19.4%, respectively. By class, availability rates rose in all sectors except class B buildings.
Analysis provided by CBRE Research.
